Market sentiment weakens after choppy trading on Monday as hopes fade for an end to the US–Iran conflict. Later on Tuesday, the US calendar includes weekly ADP Employment Change data and the Conference Board’s Consumer Confidence Index for April.
Iran reportedly sent a proposal on Monday to end the war and reopen the Strait of Hormuz. CNN reported that President Donald Trump was unlikely to accept it, and WTI rises about 2% to slightly below $97; the USD Index holds above 98.50 while US stock index futures are mixed.
Central Bank Signals And Market Reaction
The Bank of Japan kept policy unchanged at its April meeting. It raised its median core CPI forecast for fiscal 2026 to 2.8% from 1.9%, and Governor Kazuo Ueda said real rates are very low and the bank will keep raising the policy rate as conditions allow.
USD/JPY fell below 159.00 after the BoJ decision, then rebounded to trade near flat, slightly below 159.50. EUR/USD trades lower near 1.1700 after recovering part of Monday’s losses in the US session.
AUD/USD eases near 0.7170 after gaining more than 0.5% on Monday, with Australia’s CPI due in Wednesday’s Asian session. GBP/USD slips towards 1.3500 as the UK House of Commons is set to vote on a Committee of Privileges inquiry, while gold falls below $4,650 to a three-week low.
The fading optimism for a resolution between the US and Iran makes energy markets the most important area for us to watch. With crude oil already pushing towards $97 a barrel, we should consider buying call options on oil futures. This gives us exposure to further price spikes if the Strait of Hormuz remains a point of conflict, while keeping our potential losses limited.
Inventory Tightness And Oil Risk Premium
Recent data from the Energy Information Administration has shown global oil inventories running below their five-year average, which amplifies the market’s reaction to any potential supply disruption. We saw how quickly prices moved during similar geopolitical events in the early 2020s, so a break above $100 seems very possible. This renewed tension places a significant risk premium back on every barrel of oil.
In the currency market, the Bank of Japan is signaling a major policy shift with its higher inflation forecast and talk of more rate hikes. This should strengthen the yen, but for now, the strong US dollar is winning as a safe haven, keeping USD/JPY near 159.50. The conflicting pressures on this pair suggest that using options to trade volatility, rather than picking a firm direction, may be the prudent move.
Gold’s drop below $4,650 is unusual given the global tension, but it shows how powerful the strong US dollar is right now. This weakness could be a chance for us to buy call options on gold at a lower price. Historically, during severe crises like the one in 2022, we have seen both the dollar and gold rally together as investors rush to safety, meaning gold can overcome a strong dollar if the conflict escalates.
For broader equity markets, the combination of geopolitical risk and high oil prices is a significant headwind. We should expect volatility to increase, with the VIX index likely trading at elevated levels above 20, signaling fear. Purchasing protective put options on major indices can provide a necessary hedge against a potential market downturn in the coming weeks.
